Chapter 6 Quiz Real Estate Finance Flashcards
(110 cards)
1
Q
- _______________ typically aim to build commercial mortgage loan portfolios that are diversified
by property type and geography as well as in accordance with applicable investment guidelines.
A. Pension funds
B. Commercial banks
C. REITs
D. Life insurance companies
A
The correct answer is D. The life insurance company spreads the risks on these investments across the
country.
2
Q
- _______________ are member owned, not for profit financial cooperatives that provide savings,
credit, and other financial services to their members.
A. Credit unions
B. Pension funds
C. Retirement programs
D. Commercial banks
A
The correct answer is A. Credit unions are entities that provide these services. None of the other
choices are member-owned.
3
Q
3. What is an independent contractor who offers the loan products of multiple lenders? A. Mortgage broker B. Mortgage banker C. Credit union D. Loan officer
A
The correct answer is A. Mortgage brokers shop for the best product(s) for their customers. Others sell
their company’s products.
4
Q
4. What is a type of real estate company modeled after mutual funds? A. Pension funds B. REIT C. Life insurance company D. Credit unions
A
The correct answer is B. REITs are private investors and are modeled after mutual funds. The other
choices are simply lenders.
5
Q
- What is a debt investment in which an investor loans money to an entity that borrows the funds for
a defined period of time at a fixed interest rate?
A. Mutual funds
B. Securities
C. Bonds
D. Notes
A
The correct answer is C. The purpose of bonds is to raise money for public projects. The bonds must be
repaid in a timely manner. The others are not necessarily for a defined period of time and/or for a fixed interest rate.
6
Q
- What is a non-institutional individual or company that loans money, generally secured by a note
and deed of trust, for the purpose of funding a real estate transaction?
A. Life insurance companies
B. REITs
C. Pension funds
D. Private lenders
A
The correct answer is D. Private lenders is the only choice that is non-institutional. All the other choices
are institutional companies.
7
Q
7. What is the rate which is charged or paid for the use of money? A. Margin B. Interest C. Variable D. Fixed
A
The correct answer is B. Interest is the rate charged for the use of money. Margin, variable, and fixed
are all TYPES of loans.
8
Q
8. Which type of loan is used by builders to develop subdivisions? A. Construction mortgage B. Package mortgage C. Blanket mortgage D. Graduated mortgage
A
The correct answer is C.
All the other choices are for one property; while a blanket mortgage is for more than one property (in this case, a subdivision).
9
Q
9. Which of the following is chattel? A. Detached garage B. Attached satellite dish owned by the seller C. Washer/Dryer D. In ground pool
A
The correct answer is C. The definition of chattel is personal property. Only the washer and dryer are
not attached to the real property.
10
Q
10. What type of mortgage is required when a buyer and a seller agree to convey not only real property, but personal property as well? A. Package mortgage B. Blanket mortgage C. Personal mortgage D. Interim financing
A
The correct answer is A. Only a package mortgage addresses personal property. There is no such thing
as a “personal mortgage.”
11
Q
- Both lender and borrower will agree to a monthly payment, however, at a predetermined time,
agreed to by all parties, the remainder of the note will be due.
A. Short term mortgage
B. Interim financing
C. Hard money loan
D. Balloon mortgage
A
The correct answer is D. Only a balloon mortgage has a remainder which is due at a pre-determined
time
12
Q
12. Insurance provided by private carrier that protects a lender against a loss in the event of a foreclosure and deficiency. A. Homeowners insurance B. Private mortgage insurance C. Hazard insurance D. Errors and omissions insurance
A
The correct answer is B. Private mortgage insurance insures the mortgage for the lender.
13
Q
13. What is a type of mortgage that is normally made to borrowers with lower credit ratings? A. Hard money mortgage B. Predatory mortgage C. Subprime mortgage D. Adjustable mortgage
A
The correct answer is C. Predatory mortgages target the poor, the elderly, and minorities. Subprime
loans service people with lower credit scores.
14
Q
14. What is a way for smaller banks to take a piece of a larger loan transaction thereby spreading risk? A. Predatory loans B. Subprime loans C. Participation loans D. Discount loans
A
The correct answer is C. Participation Loans
This is a way for lenders to not take all the risk on a loan and allows smaller banks to participate in larger projects.
15
Q
- What is the Federal Open Market Committee?
A. It is the Fed’s monetary policy-making body.
B. It is how the Fed supplies funds to member banks.
C. It is one of the 12 Federal Reserve Banks.
D. It provides general oversight for the Fed.
A
The correct answer is A. FOMC is a group of people who advise the Federal Reserve System in their
policy-making.
16
Q
- Mike and Laura make $110,000 a year. Their long-term monthly debt is $1250. How much
monthly payment can they qualify for if the qualifying ratios are 28%/ 36%?
A. $2245.81
B. $1958.33
C. $2770.83
D. $2050.00
A
The correct answer is D.
The lesser of the two is the maximum payment.
$110,000 ÷ 12 = $9166.6667
Front-end ratio = $9166.67 × 28% = $2566.67
Back-end ratio = $9166.67 × .36 - $1250 = $2050.00
17
Q
17. A \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ allows the homebuyer to claim a tax credit for some portion of the mortgage interest paid per year. A. Discount rate B. Buydown C. IRS mortgage D. Mortgage credit certificate
A
The correct answer is D. This certificate targets low-income first-time home buyers and allows them a
credit against the income tax owed.
18
Q
18. This type of mortgage may or may not have “caps.” A. Graduated mortgage B. Buydown mortgage C. Subprime mortgage D. Adjustable rate mortgage
A
The correct answer is D. All of the other mortgages have pre-determined adjustments and unlimited
adjustments. Adjustable rate mortgages have a cap.
19
Q
- Which one of the following is NOT a “red flag” for mortgage fraud?
A. Title held by virtue of an unrecorded deed
B. Loan secured by property recently paid off
C. Property to be paid with cash at closing
D. Proposed sale within a year of obtaining title
A
The correct answer is C. There is no mortgage and does not speak to title.
20
Q
20. What is the amount of money allocated to pay down the loan each month? A. Principal B. Interest C. Monthly payment D. PITI
A
The correct answer is A. The other choices address additional components of the mortgage payment.
21
Q
21. What is non-performance of a duty arising under a contract or otherwise? A. Foreclosure B. Default C. Breach D. Delinquent
A
The correct answer is B. Default
If a party is unwilling or unable to perform on a contract, it is default. A default is also called an uncured breach.
22
Q
22. What is the process of taking possession of a mortgaged property as a result of the mortgagor’s failure to keep up mortgage payments? A. Default B. Foreclosure C. Breach D. Condemnation .
A
The correct answer is B. In Texas, foreclosure is addressed in the deed of trust. Condemnation is the
process of taking private property for public use. Mortgage payments are between the borrower and the
lender and has nothing to do with the breach or default
23
Q
23. This document authorizes the lender to foreclose on the property if the owner defaults. A. Note B. Mortgage C. Deed D. Deed of Trust
A
The correct answer is D. The deed of trust is the security for the lender and gives the trustee the
authority to foreclose on non-performing loans.
24
Q
24. If the homeowner has received a home equity loan or a loan that was used to pay property taxes, the lender must obtain a court order approving the foreclosure before performing a non-judicial foreclosure. What is this is called? A. Judicial review foreclosure B. Deed in lieu of foreclosure C. Combination foreclosure D. Default .
A
The correct answer is C. Combination foreclosure
It is called a combination because the lender does have to have the court order
but can actually do the foreclosure process without going to court. If the borrower defaults on a
mortgage that does not include a home equity loan or a loan that paid taxes, the lender can allow the
trustee to foreclosure without going to court or getting a court order
25
```
25. Which of the following allows for unequal shares of ownership?
A. Tenants in common
B. Joint Tenancy
C. Tenancy by the entirety
D. Freehold estates
```
The correct answer is A. Tenancy in Common
Joint tenancy and tenancy by the entirety have equal shares of ownership. Freehold estates is a general term that describes all three.
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```
26. What is a loan for which the lenders’ only remedy in case of default is to repossess the property
being financed?
A. Foreclosure
B. Repossession loan
C. Non-recourse loan
D. Option loan
```
The correct answer is C. Non-recourse loan
In this type of loan, there are no other options except to take the property back.
27
27. What is a judgment by the court in favor of foreclosure of a mortgage or deed of trust, which
orders that the real property which secured the debt be sold under foreclosure proceedings to pay
the debt?
A. Non-judicial foreclosure
B. Judicial foreclosure
C. Foreclosure
D. Deed of trust foreclosure
The correct answer is B. Judicial foreclosure
A and D allow foreclosure without court approval and C can go either judicial or
non-judicial
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28. What is defined as a social science that studies how individuals, governments, firms, and nations
make choices on allocating scarce resources to satisfy their unlimited wants?
A. Finance
B. Social studies
C. History
D. Economics
The correct answer is D. Economics is the study of the behavior of people in a given area.
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```
29. First established in the 1930’s, this provided liquidity of funds and created more available money
for consumption.
A. Primary market
B. Federal Reserve System
C. VA loans
D. Secondary market
```
The correct answer is D. The secondary market encouraged the purchasing of real property to stimulate
the economy during the Great Depression in the 1930’s.
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30. Which of the following is NOT necessary for money to function well?
A. It must be in U.S. currency.
B. It must be easily measured to determine its actual value.
C. It must not deteriorate quickly.
D. Buyers and sellers must widely accept it.
The correct answer is A. You can have money in different countries under their currencies (the pound,
the yen, or the euro, for example) as these currencies function in their economies. So, the currency
does not have to be U.S. currency to function.
31
```
31. The interest rate the Fed charges its member banks is called the:
A. Prime rate
B. Discount rate
C. Discount points
D. Interest rate
```
The correct answer is B. The prime rate is the rate from bank to bank. Discount points and interest rate
have to do with loans, not the Fed.
32
32. Which is NOT a responsibility of the Federal Reserve System?
A. To influence money and credit conditions in the economy
B. To set reserve requirements for its’ member banks
C. To set mortgage interest rates for the secondary market
D. To supervise and regulate banks and other important financial institutions
The correct answer is C. To set mortgage interest rates for the secondary market
The interest rate is set by FNMA, FHLMC, GNMA, the largest secondary
markets, not the Fed.
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```
33. Maintaining the stability of the financial system and containing systemic risks that may arise in
financial markets is done through the:
A. U.S. Treasury
B. FDIC
C. The secondary money market
D. The primary money market
```
The correct answer is B. The FDIC was established during the Great Depression and established
stability in the market by insuring depositors’ deposits. Currently insurance covers $250,000 per
account.
34
```
34. Notes, bonds, certificates, mortgages, leases or other agreements between a lender and a
borrower are collectively called:
A. Credit Instruments
B. Mortgages
C. Deeds
D. Deed of trusts
```
The correct answer is A. The key word in the question is “collectively”. Credit instruments include all of
the other three. Mortgages, deeds, and deeds of trust are each a credit instrument.
35
```
35. What is fee simple absolute?
A. Community Property
B. Leasehold Estate
C. Estate for years
D. Freehold Estate
```
The correct answer is D. B and C are non-freehold estates. Community property is part of a freehold
estate (called a tenancy in its entirety).
36
```
36. The Federal Deposit Insurance Corporation (FDIC) insures deposits and other accounts up to:
A. $100,000
B. $150,000
C. $200,000
D. $250,000
```
The correct answer is D. The FDIC was established during the Great Depression and established
stability in the market by insuring depositors’ deposits. Currently insurance is $250,000 per account.
This was raised by the federal government during the most recent housing crisis.
37
```
37. Redlining is prohibited by:
A. RESPA
B. TILA
C. CRA
D. HUD
```
The correct answer is C. The Community Reinvestment Act (CRA) encourages re-investing in the community. Redlining is discrimination against people and properties in low-income areas and is
prohibited by the CRA.
38
38. This Act ensures that consumers throughout the nation are provided with more helpful information
about the cost of the mortgage settlement and protected from unnecessarily high settlement
charges caused by certain abusive practices.
A. Dodd-Frank Act
B. RESPA
C. TILA
D. Regulation Z
The correct answer is B. The key word in this question is” settlement charges.” The correct answer is
RESPA (the Real Estate Settlement Procedures Act). Dodd Frank has to do with consumer protection
and TILA and Regulation Z deal with advertising.
39
39. The goal of this Act was to reduce fraud by encouraging states to establish minimum standards for
the licensing and registration of state-licensed mortgage loan originators.
A. SAFE Act
B. ECOA
C. Dodd-Frank Act
D. CRA
The correct answer is A. The SAFE Act (Safe and Fair Enforcement for Mortgage Licensing Act) is
specifically for the mortgage industry. It basically requires licensing and servicing agencies to
communicate with each other. This is what Homeland Security Department does for our national
security since 9/11.
40
```
40. This Act governs the process by which federal agencies develop and issue regulations.
A. APA (Administrative Procedures Act)
B. SAFE
C. Dodd-Frank
D. CFPB
```
The correct answer is A. The APA requires federal agencies to get public input before enacting policies.
41
41. This department acts as a conduit for federal funds for housing and community services.
A. VA
B. FHA
C. HUD
D. TDHCA Texas Department of Housing and Community Affairs
The correct answer is D. The Texas Department of Housing and Community Affairs is a state and
community agency. All others are federal agencies.
42
42. TILA is legally obligated to disclose to the purchaser all of the following EXCEPT:
A. If there is a pre-payment penalty
B. If the property had ever been foreclosed on
C. What the penalty will be if the payment is over 15 days late
D. If the loan is assumable
The correct answer is B.
Truth-in-Lending Act has to do with advertising mortgage payments.
43
43. Which is NOT a purpose of the New Loan Estimate?
A. It helps the consumer compare loan offers.
B. It helps the consumer understand the real cost of the loan.
C. It helps the consumer choose the right appraiser.
D. It helps the consumer make an informed decision about the loan choice.
The correct answer is C. A, B, and D are all parts of the new Loan Estimate. C is not because it speaks
to the estimated value of the property, not the loan.
44
44. A Federal Reserve Bank does all of the following EXCEPT:
A. Sells bonds and securities
B. Supervises commercial banks in their region
C. Stores currency and coin
D. Processes checks and electronic payments
The correct answer is A. Bonds and securities are created and traded on Wall Street and other money
markets, not the Federal Reserve.
45
```
45. The main purpose of ______________ is to provide financial assistance to low- and moderateincome buyers by promoting mortgage credit.
A. FNMA
B. FHLMC
C. GNMA
D. Farmer Mac
```
GNMA was established after WW II to assist veterans in obtaining homes.
46
49. What is a written legal instrument that embodies the agreement between a lender and a borrower
to transfer an interest in the borrower’s property to a neutral third party to secure the payment of a
debt by the borrower?
A. Deed of trust
B. Deed
C. Note
D. Mortgage
The correct answer is A. The deed of trust is the security for the lender who employs a trustee (thirdparty) to act on its behalf.
47
```
50. Which of the following is NOT found on the deed of trust?
A. Names of the borrowers
B. Property address
C. Names of the sellers
D. Legal description
```
The correct answer is C. The deed of trust is between the borrower and the bank. The seller has nothing
to do with it!
48
```
51. To qualify the buyer using only the gross monthly income, the lender would use:
A. A front-end ratio
B. Back-end ratio
C. A real estate appraiser
D. The income approach
```
The correct answer is A. There are two qualifying ratios. The front end and the back end. The front end
includes gross monthly income ONLY and the back end includes long-term debt and total payment.
49
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52. What is a clause in a mortgage contract that requires full payment of a balance of a mortgage at the lender’s discretion if the property is sold or the title to the property changes to another person?
A. Balloon clause
B. Acceleration clause
C. Assumption clause
D. Alienation clause
```
The correct answer is D.
The alienation clause is also called the “due on sale” clause. An assumption clause allows the buyer to assume the seller’s existing loan and is the opposite of alienation. The
acceleration clause is used in the mortgage and is the first step in the foreclosure process when
someone defaults on the loan.
50
```
53. Condemnation, zoning, taxation, and eminent domain describe:
A. Social characteristics of land
B. Physical characteristics of land
C. Visual characteristics of land
D. Economic characteristics of land
```
The correct answer is A. Social characteristics
These are collectively called “police powers.”
51
54. The secondary market consists of investors who buy:
A. Mortgage notes
B. Foreclosed real estate
C. Charged off credit card debt
D. Any property sold with a special warranty deed
The correct answer is A. The secondary market includes FNMA, GNMA, and FHLMC among others.
Their goal is to provide liquidity to the market. FNMA is the largest secondary market of the three.
52
```
55. The most popular FHA home loan is the:
A. 203a
B. 203b
C. 245k
D. 237a
```
The correct answer is B. FHA offers many types of loan programs but the most popular is the FHA 203b
loan.
53
```
56. HUD created the FHA __________________ program to help lenders meet the high demand for
FHA-backed financing.
A. Automatic endorsement
B. Low-doc endorsement
C. Direct endorsement
D. No such program exists.
```
The correct answer is C. This provides for faster loan approval.
54
```
57. Which one of the following benefits is NOT part of the VA loan?
A. Limitations on closing costs
B. Long amortization terms
C. Reduced property taxes
D. No down payment
```
The correct answer is C. Property taxes are the responsibility of the counties, not the VA.
55
58. VA offers additional programs to veterans. Which of the following is NOT included?
A. Delinquency assistance for those in financial trouble
B. Financial help for the payment of utility bills
C. Native American direct loans to finance the purchase of homes on Federal Trust Land
D. Cash out programs to borrower against the equity
The correct answer is B. Utility bills are the responsibility of the veteran, not the VA.
56
```
59. FNMA and FHLMC are:
A. Owned with a consortium of investors
B. Privately owned
C. Government owned
D. Purchase existing VA and FHA loans
```
The correct answer is B. Privately Owned
```
Fannie Mae (FNMA) and Freddie Mac (FHLMC) are government-sponsored enterprises (GSEs). This means that they are privately owned, but receive support from the Federal
Government, and assume some public
```
57
```
60. What would the appraiser use to qualify the collateral on rental property?
A. Comparable market analysis
B. Broker's Price Opinion
C. Closed sales on all nearby properties
D. Income on rental properties
```
The correct answer is D. The three approaches to appraisal are the market, cost, and income
approaches. For income producing properties, the income approach carries the most weight. This
approach can be supported by the other two approaches.
58
```
61. Established during the great depression, which of the following created more available funds for
the marketplace?
A. Secondary market
B. Federal Reserve
C. Primary market
D. VA loans
```
The correct answer is A. The secondary market provides liquidity to the real estate market and in turn
stimulates the economy.
59
```
62. What is also known as “community property?”
A. Joint tenancy
B. Tenants in common
C. Tenancy by the entirety
D. Freehold estate
```
The correct answer is C. A married couple is considered as “one.”
60
```
63. What is a court judgment allowing real property securing a debt to be foreclosed to satisfy a
default?
A. Foreclosure
B. Deed of trust foreclosure
C. Non-judicial foreclosure
D. Judicial foreclosure
```
The correct answer is D. The non-judicial foreclosure is part of the deed of trust in Texas and allows the
trustee to set in and foreclose without going to court.
61
```
64. Which of the following is defined as the pay down of the loan each month?
A. Principal
B. Interest
C. Taxes
D. Insurance
```
The correct answer is A. Don’t get this confused with the party to the contract “the principal.” The
principal amount is the loan amount.
62
```
65. What would they be guilty of if a party to the contract doesn’t perform a duty required in the
contract?
A. Default
B. Breach
C. Delinquent
D. Deficiency judgment
```
The correct answer is A. As an uncured breach, a default is when one party cannot or will not adhere to
the terms of the contract.
63
66. What is it called if the lender has to obtain a court order approving the foreclosure on a home
equity loan or a loan that was used to pay property taxes?
A. Default
B. Deed in lieu
C. Combination
D. Judicial review
The correct answer is C. If a homeowner has received a home equity loan or a loan that was used to
pay property taxes, the lender must obtain a court order approving the foreclosure before performing a
non-judicial foreclosure.
64
```
67. _____________ are the most common type of mortgage-backed securities established by the Tax
Reform Act of 1986.
A. MBS
B. REMICs
C. REITs
D. ECOAs
```
The correct answer is B. REITs are not mortgage-backed securities. MBS (Mortgage-backed securities)
is just the general term. ECOAs is just a false term.
65
```
68. This legal instrument is given to the lender at closing to secure the debt made by the borrower.
A. Deed
B. Deed of Trust
C. Mortgage
D. Note
```
The correct answer is B. Deed of Trust.
The deed of trust is the type of mortgage used in Texas and is a three-party instrument which includes the lender, borrower, and the trustee. This allows for non-judicial foreclosure.
66
```
69. What is NOT a physical characteristic of land?
A. Situs
B. Heterogeneity
C. Indestructibility
D. Immobility
```
The correct answer is A. Situs means preference and is a social characteristic of land. B, C, and D are
all physical characteristics of land.
67
```
70. Which of the following provides financial assistance to low- and moderate-income buyers by
promoting mortgage credit?
A. REIT
B. FNMA
C. FHLMC
D. GNMA
```
The correct answer is D. Originally, GNMA was designed to provide housing financing to returning WWII veterans
68
```
71. Which of the following diversifies its portfolios by property type and geography?
A. Commercial banks
B. Pension funds
C. Life Insurance Companies
D. REITs
```
The correct answer is C. Ife Insurance Companies
This is designed to spread risk by diversifying investments in different regions of the country.
69
```
72. A _________________ models itself after mutual funds.
A. Pension Fund
B. REIT
C. Credit Union
D. Commercial Bank
```
The correct answer is B. REITs are for private investors. The way investors buy into a REIT is the same
way they buy into a mutual fund.
70
```
73. Which of the following is used by the appraiser to qualify collateral on rental property?
A. Compared rentals approached
B. Comparable market approach
C. Rental abstract approach
D. Income on rental properties
```
The correct answer is D. The three approaches to appraisal are the market, cost, and income
approaches. For income producing properties, the income approach carries the most weight. This
approach can be supported by the other two approaches.
71
```
74. This program created by HUD helped lenders meet high demand for FHA backed financing.
A. Direct endorsement
B. Automatic endorsement
C. FHA 203B
D. Low doc endorsement
```
The correct answer is A. Direct endorsement provides for faster loan approval.
72
```
75. What is a freehold estate?
A. Community property
B. Estate for years
C. Fee Simple Absolute
D. Leasehold estate
```
The correct answer is C. Sometimes called “fee simple,” it is the highest form of ownership in real
property.
73
```
76. What are credit instruments?
A. Notes
B. Deeds
C. Deed of Trusts
D. Liens
```
The correct answer is A. Sometimes called a promissory note, it defines repayment of the loan.
74
```
77. The ________________ is/are the interest rate(s) the Fed charges its member banks.
A. Discount points
B. Federal Home Loan Bank rate
C. FDIC rate
D. Discount rate
```
The correct answer is D. This provides liquidity for the member banks.
75
```
78. Which of the following can be used to purchase personal property as well as real property?
A. Blanket mortgage
B. Agricultural lending
C. FHA
D. All the above
```
The correct answer is B. Agricultural lending
Used for farm and ranches and allows the borrower to purchase equipment related to the farm or ranch production. See Farm and Ranch Promulgated Contract for details.
76
```
79. Which Act is designed to reduce fraud by encouraging states to adapt minimum standards for loan
originators?
A. CFPB
B. SAFE Act
C. ECOA
D. Dodd-Frank Act
```
The correct answer is B. Post 9-11 Homeland Security consolidated various agencies for the purpose of
communication with each other. SAFE Act is designed to do the same at various agencies to prevent
mortgage fraud.
77
```
80. Which is NOT a social characteristic of land?
A. Zoning
B. Taxation
C. Scarcity
D. Eminent domain
```
The correct answer is C. Scarcity has to do with supply and demand. The scarcer the supply of property,
the higher the demand. An example of this would be lakefront property.
78
```
81. A buyer wants to use an FHA loan. If he lives on the property, which of the following can he buy?
A. Single family
B. Duplex
C. Fourplex
D. All of the above
```
The correct answer is D. All are written on the One-to-Four Family Contract which includes up to a
fourplex. It must be occupied by the owner.
79
```
82. Who services the loans they originate?
A. Credit unions
B. Mortgage brokers
C. Lenders
D. Mortgage bankers
```
The correct answer is D. Mortgage brokers do not service the loans they originate.
80
```
83. If a borrower defaults on mortgage payments, the lender can begin a process to take the property.
This is called:
A. Foreclosure
B. Condemnation
C. Eminent domain
D. Escheat
```
The correct answer is A. Condemnation, eminent domain, and escheat have nothing to do with the loan.
If a buyer fails to make the mortgage payment (defaults), the lender can foreclose.
81
84. Which is NOT a purpose of the CFPB?
A. It helps the consumer make an informed decision about loan choices.
B. It helps the consumer choose the right real estate inspector.
C. It helps the consumer understand the real cost of the loan.
D. It helps the consumer compare loan offers.
The correct answer is B. The CFPB is focused on the loan. It has nothing to do with the inspection of the
property.
82
```
85. Which is member owned and not for profit?
A. A REIT
B. Pension funds
C. Credit unions
D. Commercial banks
```
The correct answer is C. REITs, pension funds, and commercial banks are not member-owned. That is
a unique characteristic of a credit union.
83
```
86. What is a tax credit for the homebuyer for some portion of the mortgage interest paid per year?
A. Discount points
B. Buydown points
C. Mortgage Credit Certificate
D. Certificate of Reasonable Value
```
The correct answer is C. This certificate is designed to assist first-time home buyers.
84
87. Which is a “Red Flag” for mortgage fraud?
A. A loan secured by property recently paid off
B. A cash payment for a house at closing
C. A loan given by a friend or relative
D. A short-term loan of five years or less
The correct answer is A.
Check with the last known lender to verify any recently paid off properties. The release of lien may be forged.
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88. What is it called if smaller banks join with other lending institutions on a large transaction for the
purpose of spreading risk?
A. Participation loan
B. Shared loan
C. Discount loan
D. Joined loan
```
The correct answer is A. Some loans are just too large for one bank. Other larger banks may not want to
put all of their assets into one loan. Therefore, they participate with other banks to spread their risk.
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95. This type of loan allows a builder to draw from the account.
A. Construction loan
B. Hard money loan
C. Reverse mortgage
D. Package mortgage
```
The correct answer is A. A construction loan is also called interim financing. All other require completed
construction before the lender will make the loan.
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96. A buyer with a low credit score and questionable credit will have a better chance with what kind of
mortgage?
A. Discount mortgage
B. Buydown down mortgage
C. Subprime mortgage
D. Participation loan
```
The correct answer is C. By definition, that is what a subprime mortgage is. A better chance does not
mean guaranteed. The downside of a subprime loan is that it has stricter terms and above market
interest due to the risk to the lender.
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97. What is the name of the mortgage insurance on FHA loans?
A. Private mortgage insurance
B. Mortgage funding fee
C. FHA does not require mortgage insurance
D. Mortgage insurance premium
The correct answer is D. Mortgage insurance premium
The mortgage insurance for FHA loans is called MIP and the mortgage
guarantee for VA loans is the funding fee. Private mortgage insurance is for conventional loans.
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98. Which type of loan requires a Certificate of Reasonable Value?
A. FHA
B. VA
C. Conventional
D. FNMA
```
The correct answer is B. VA
This is sometimes called the VA appraisal.
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99. Which of the following is NOT allowed under FHA loans?
A. Vacation homes
B. Condominiums
C. Mobile homes
D. Construction loans
The correct answer is A. FHA requires owner occupancy in excess of six months per year.
100. Mortgage insurance is required on VA loans when the LTV is greater than:
A. 75%
B. 80%
C. 85%
D. Mortgage insurance is not required.
The correct answer is D. There is no mortgage “insurance” on a VA loan. It is a loan guarantee.
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101. One of the largest buyers of mortgage backed securities is:
A. Commercial banks
B. China
C. Pension funds
D. FNMA
```
The correct answer is D. FNMA
Established during the Great Depression, FNMA continues to provide liquidity
in the market.
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102. This was established to relieve unemployment and stimulate the release of private credit in the
hands of banks and lending institutions for home repairs and construction.
A. FHA
B. FNMA
C. FHLMC
D. GNMA
The correct answer is A. FHA is a part of HUD (Housing and Urban Development) and was created
during the Great Depression to assist lower income people in purchasing a home. This led to the
demand of increased construction, which lowered unemployment and stimulated the economy during
that critical period.
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103. What is a consumer protection statute designed to help homebuyers be better shoppers?
A. TILA
B. CFPB
C. FHA
D. VA
```
The correct answer is B. CFPB This is a political football and the answer is subject to change.
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104. This Act was passed to regulate mortgage lenders and mortgage brokers.
A. SAFE
B. APA
C. Dodd-Frank
D. TILA
```
The correct answer is A. Post 911 Homeland Security consolidated various agencies for the purpose of
communication with each other. SAFE Act is designed to do the same at various agencies to prevent
mortgage fraud.
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105. What type of loan is used by builders of subdivisions?
A. Package mortgage
B. Construction mortgage
C. Interim financing
D. Blanket mortgage
```
The correct answer is D. The blanket mortgage contains provisions which releases individual lots from
liens with the bank at sale.
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106. Henry and Nelly would like to purchase a home. If their annual income is $185,000/year
combined, long term monthly debt is $1,275, and the qualifying ratios are 28%/ 36%, what
would be the maximum monthly payment they could afford?
A. $4316.67
B. $4275.00
C. $4120.83
D. $4949.58
The correct answer is B. The solution is as follows: $185,000 ÷ 12 = $15,417 (rounded gross monthly
income); GMI x 28% =$4317; GMI x 36% = $5550 - $1275 = $4275. The lesser of the 2 amounts is the
maximum monthly payment ($4275).
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107. At a predetermined time, agreed to by all parties, the note will be due.
A. Balloon note
B. Short term note
C. Interim note
D. Predatory lending
```
The correct answer is A. The key in this that it is agreed to by all parties and it is a pre-determined time when the loan will be due.
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108. One point is equal to:
A. $1000
B. 1% of the sales price
C. 1% of the loan amount
D. 1% of the LTV
```
The correct answer is C. Keep in mind that it is 1% of the loan, not the sales price.
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109. Which mortgage insurance has both an upfront and a monthly payment?
A. ARM
B. MIP
C. Funding fee
D. Both A and B
```
The correct answer is B. The MIP for an FHA loan has both an upfront fee and a monthly payment.
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110. What is a provision in a mortgage contract that allows the seller of a home to pass responsibility
to the buyer of the home for the existing mortgage?
A. Alienation clause
B. Due-on-sale clause
C. Wraparound clause
D. Assumption clause
The correct answer is D. This clause allows the buyer to assume the seller’s existing loan.
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111. To place in a lower position:
A. Proximity clause
B. Subjection clause
C. Submission clause
D. Subordination clause
```
The correct answer is D. The subordination clause is in the note and allows the lenders to adjust the
priority of the loan from a senior to a junior position
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112. If a loan has a “cap,” what kind of loan is it?
A. Conventional mortgage
B. Adjustable rate mortgage
C. Variable rate mortgage
D. Balloon mortgage
```
The correct answer is B. Also called an ARM, it limits the movement of the interest rate up or down at a
predetermined time frame. Examples include annual and lifetime within a predetermined time frame.
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113. What are total monthly housing costs compared to total gross monthly income?
A. Underwriter's guidelines
B. Back-end ratio
C. Front-end ratio
D. LTV ratio
```
The correct answer is C. Front-end ratio
The back-end ratio includes long-term monthly debt. The front-end ratio
includes the gross monthly income times the qualifying ratio. The LTV is the percentage borrowed in relation to the sales price.
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114. Refusing to make home loans to areas or neighborhoods deemed poor financial risk is
protected by:
A. Fair housing
B. RESPA
C. CRA
D. ECOA
```
The correct answer is C. The Community Reinvestment Act prevents this “redlining” practice.
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115. The borrower, lender, and trustee can be found on what document?
A. Deed
B. Note
C. Deed of trust
D. Mortgage
```
The correct answer is C. The deed goes to the buyer at closing and includes the grantor and grantee.
The note defines the terms of the promise to pay and the mortgage is a conditional transfer or pledge of
real estate as security for the payment of the debt.
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116. The _______________ authorizes the lender to foreclose on the property if you default.
A. Deed
B. Deed of Trust
C. Note
D. Mortgage
```
The correct answer is B. The deed of trust is the type of mortgage used in Texas and is a three-party
instrument which includes the lender, borrower, and the trustee. This allows for non-judicial foreclosure.
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117. Which of the following prorations is paid in arrears?
A. Insurance
B. Rent
C. Principal
D. Interest
```
The correct answer is D. Interest
Insurance and rent are prepaid, and principal is not prorated. Taxes are the
only other item paid in arrears.
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118. What time period must borrowers have in job history with the same employer to qualify?
A. 2 months
B. 6 months
C. 1 year
D. 2 years
```
This time period is dictated by the secondary market participants in order for the loan to conform.
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119. Which is NOT a responsibility of the U.S. Mint?
A. Investigating counterfeit money
B. Receiving, redeeming, and processing mutilated coins
C. Manufacturing and setting platinum, gold, and silver bullion coins
D. Distributing U.S. coins to the Federal Reserve banks and branches
The correct answer is A. Investigating counterfeit money is done by the Secret Service, which is now a
part of Homeland Security.
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120. What is a right of title or deed to land? It is of indeterminate duration.
A. Estate for years
B. Leasehold estate
C. Freehold estate
D. Real property
```
The correct answer is C. A and B are non-freehold (owned for a time period and reverts back to the
owner and sometimes collectively called leasehold estate). Real property does not define title of deed.
